Starting a debt management plan (DMP) can be daunting, but there are...
The difference between old style and new style student loans
If you’re like me, you went to university because that was what you’d always expected you’d do. There was no real thought for what you’d do at the end or how it would actually benefit you, let alone how much it would cost and the time it takes to repay.
Even now, years after leaving university, I’m still not quite sure how long it will take me to repay my student loan in full. But somehow it doesn’t matter that I don’t give it a second thought and don’t consider it to be an actual ‘debt’ as such.
The fact that it’s deducted at source and I don’t receive the money before it’s paid out helps to put it to the back of my mind and not worry about it like I might about other bills.
Nowadays students seem to be more aware of the costs involved, as rising fees and cuts being made to benefits such as EMA make the news headlines. And as more and more graduates are struggling to find employment, I’d probably think a lot longer and harder about going to university if I had to make the decision now.
Old style vs. new style student loans
So in honour of National Student Money Week and for those of you like me whose student days are long gone, we’ve outlined the basics around repaying student loans and split them into two: ‘old style’ and ‘new style’.
Firstly what might shock you the most is that whichever style you have, one thing that’s certain is that you can’t avoid repaying it if you earn above the threshold. Neither is included in any form of insolvency and so cannot be written off, no matter what your financial circumstances.
So whether you’re considering a Debt Relief Order (DRO), an Individual Voluntary Arrangement (IVA) or even bankruptcy there’s no way of avoiding the fact that it needs to be repaid!
Old: Students that started university between 1990 and 1997 will have this type of student loan.
New: Anyone who is currently studying and all students that started during or after 1998.
Old: The current interest rate is 4.4% and doesn’t take into consideration any repayments you might have made within the last year.
New: The interest rate tracks the Bank of England base rate plus 1%, so currently it’s 1.5%. It won’t ever exceed 4.4%.
Old: Last year’s interest rate was -0.4% (so loans will have reduced whether you made payments or not!).
New: Last year’s interest rate was 0% so the balance would have remained the same if you didn’t make any repayments.
Old: You only make repayments if you earn over £26,449. The outstanding amount is divided over 5 years, or 7 years if you took out more than five loans
New: Repayments start at 9% of everything you earn over £15,000
Old: You make repayments directly to the Student Loans Company
New: Payments are deducted by your employer at source through payroll. HM Revenue and Customs only send it on to the Student Loans Company once a year but interest is applied as though payments were made monthly.
If you’re self employed, you would need to do a self assessment at the end of the tax year and send the payments yourself.
If you have more than one job, and you’re under the threshold for both – even if just by a small amount – you wouldn’t have to make payments as they don’t consider the total income.
Old: The loan is not recorded on your credit file. However if you are late in making repayments, this will be recorded and will affect your credit rating.
New: It will never impact your credit file, although lenders may ask whether you have a student loan if you apply for credit. Your take home pay may also be taken into consideration which already accounts for your repayments.
Old: If you are earning less than £26,449, you have to write to the SLC to inform them of this and defer your repayments. If you don’t do this, they will chase you assuming you should be making payments.
New: You can’t defer payments as long as you’re earning above the threshold.
If you’re under 40, your loan will be wiped clear 25 years after your repayments were to start or when you reach 50 if this is sooner. If you’re aged over 40 it will be wiped when you reach 60.
If you took your loan out between 1998 and 2006, your loan will be wiped when you reach 65. If it was taken out after 2006, it will be wiped 25 years from the first April of graduation when you were first due to repay.
Have you got student debts? How long do you anticipate that it’ll take you to repay – longer or shorter that you expected? Do you have other debts from your student days, such as overdrafts and credit cards? We’d love to hear your thoughts.
Read our Student Debt Guide.